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$A slightly lower despite strong GDP data

Jason Cadden

The Australian dollar is slightly lower despite rallying on the back of surprisingly strong local economic growth figures.

At 1700 AEST on Wednesday, the local unit was trading at 92.67 US cents, down from 92.77 cents on Tuesday.

The currency briefly peaked at 92.99 US cents after official data showed that the Australian economy grew by 1.1 per cent in the first three months of the year, much stronger that the 0.8 per cent rise the market was expecting.

The annual rate came in at 3.5 per cent - the fastest pace gross domestic product (GDP) has expanded in two years.

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However the currency started to fall as traders started to look into the details of the report.

March quarter growth was mainly driven by mining exports and housing investment.

RBC Capital Markets senior economist Su-Lin Ong said it is likely that growth will slow a little in the June quarter.

"More timely indicators suggest some loss of momentum recently in the rate sensitive sectors which is not particularly surprising," she said.

"The momentum of late 2013, early 2014 was never likely to be sustained."

The Australian dollar rose past 110 New Zealand cents for the first time since December 13.

At 1700 AEST, it was at 110.15 New Zealand cents, up from 109.45 NZ cents on Tuesday.

The Australian dollar also rose against the Japanese yen, to 95.15 yen from 94.92 yen, but fell to 68.10 euro cents, from 68.19 euro cents.

Meanwhile, the Australian bond market was weaker.

JP Morgan interest rate strategist Sally Auld said the bond markets continue to sell off helped by the economic data and a sell off on the US bond market.

"The GDP number came quite a bit stronger that expected, so that plus the fact that US Treasury yields moved higher (prices lower) overnight set the tone for today," he said.

"It was a pretty good sell off."

During the afternoon bond futures prices started to level off.

"We've had a decent sell off from the levels seen earlier in the week and that's why the sell off has come to a halt this afternoon," Ms Auld said.

At 1630 AEST on Wednesday, the June 2014 10-year bond futures contract was trading at 96.225 (implying a yield of 3.775 per cent), down from 96.285 (3.715 per cent) on Tuesday.

The June 2014 three-year bond futures contract was at 97.160 (2.840 per cent), down from 97.220 (2.780 per cent).

Financial markets will be waiting for the outcome of the European Central Bank meeting on Thursday night.

It is expected that the ECB will announce a raft of policies to help stimulate the region's economy.